Is there any real surprise?
you're a small businessman gambling in vegas after a two day convention. mesmerized by the dollar drinks and the bright shiny lights, you find yourself down five grand at the tables. you promised your wife you wouldn't lose more than $500. what do you do? you max out the emergency mastercard, lay another 5 g's on the line. after all, your luck's bound to turn. and if it doesn't, hey, you were screwed anyway right?
the Fed's strategy is akin to doubling down deep in the hole.
if the debtors go down in flames, Uncle Sam and the average consumer- the two behemoths- are both screwed. So screwing over all creditors (bondholders, foreign investors and savers in general) via massive reflation is a risk the fed is willing to take, especially considering this is the long term plan anyway. Greenspan is willing to light the fuse on a keg of TNT to blast us out of the hole- never mind the minor detail that we're sitting on it.
I think we could be headed for the worst of both worlds- stagflation. Meaningless stuff like electronics and color TV's will be dirt cheap and keep getting cheaper, but necessities like medicine and food and gas for the car will eventually start getting outrageous. As things get tight, people will cut back to the necessities only- and so the cost of necessities will keep rising.
And not long after the general mood of the public really hits the skids, there will probably be a dramatic escalation of class warfare rhetoric. America has long admired successful people mainly because it's a cornerstone of the American ethos that anyone can get rich in this country if they just work hard enough and smart enough. The middle class generally don't envy the rich because they see themselves becoming rich some day. Most people don't think about long term cycles and back room deals and the sheer dumb luck of right place / right time. Baby boomers aren't going to just sit back and say "gee, guess we got a bad break on the long term cycle, better luck for the next generation." They are going to get seriously angry. When the belief in equality of opportunity is eroded and the average joe finds himself upside down on his mortgage and the public embraces bitterness in a way that it hasn't yet, you are going to see the fit hit the shan. If I were one of those guys who made hundreds of millions from a dot com company that went bust, I would seriously contemplate moving to Costa Rica or Thailand or New Zealand.
What did Locke say, something like a democracy can only last until the masses realize they can exploit majority rule for their own ends and extract largesse from the system. Not an exact quote, but it gets the gist of it I think. If earth is still around in five hundred years, maybe historians will deem America the second roman empire.
